Buying US Property

Posted by South Stand 14 yrs ago

Does anyone here (non US citizen) have any experience buying US property for the purpose of investement and can offer any advice?

I am a HK PR and have been considering investing in US property, but am unsure of how to begin looking into this to start understanding what the process is and / or what some of the considerations may be like taxes etc.

If anyone has any suggestion or places where to obtain information it would be appreciated.

RB

Ed 14 yrs ago

Not sure how to go about buying but here's a heads up on the US property market that might be useful:

Housing crash is getting worse: Zillow now predicts prices will fall about 8% this year and says it no longer expects the market to bottom before 2012.

http://www.marketwatch.com/story/housing-crash-is-getting-worse-2011-05-09

Homeowners with negative equity increased from 22 percent a year earlier as home prices slumped 8.2 percent over the past 12 months... (will likely result in even more foreclosures further depressing prices)

http://www.bloomberg.com/news/2011-05-09/u-s-underwater-homeowners-increase-to-28-percent-zillow-says.html

bing2 14 yrs ago

try LA. i bought 2 units there. great values and rental income. taxes are OK, acceptable. but you have to know your locations well.

sistim 14 yrs ago

Gird your loins, we just bought a place in the USA and it was incredibly complicated, no wonder the country has so many lawyers. As a "foreigner", I stayed out of it, it's all in my yankee husband's name & he has a separate will leaving me the house if anything happens. Then it will get really complicated... also I think it may vary by state tax-wise - we bought in so-called Tax-achussetts... first thing friends there said was "Welcome to Mass. state property tax" !

matthewmiller 13 yrs ago

I had a query for which I need suggestions from you all...I have two property in US out of which I had utilized one for investment.. Now am thinking of utilizing the second one also for investment...But am not sure whether such dealing is legally permitted or not.what do you guys think..can I use the second one also for investment??

brentm 13 yrs ago

I run a specialist USA residential property fund that handles all of the investment process, taxation, leasing and proeprty management. The fund is focussed on buying bank foreclosed properties that can be bought at up to 30% discount to market value and leasing them out porviding investors with income returns of around 10% pa. The fund was established last year, We have been specialing in real estate investment for over 25 years. This is a great time to b einvesting in the USA. You can buy quality houses in good cities for $80,000 upwards in better suburbs. Please let me know if you would like more information.

OffThePeak 13 yrs ago

I'm just curious: How do you deal with the inevitable headaches? And how common are they?

If not common for you, then how do you manage to avoid them?

brentm 13 yrs ago

We have a dedicated person on the ground in each of the cities plus we have a property management company handling the tenanct and any maintenance issues. It is really know different to managing properties any where else in the world. The key is buying in th right areas so you get the right quality of tenant. Tenants quite often sign two year leases which is great.

brentm 13 yrs ago

Apologies for the spelling. We have been around for 25 years, survived the GFC and have a historical return to our investors of 20% pa, which is a very solid record of investment.

ringotang 13 yrs ago

Hi Brentm, any detail information can pass to me?

OffThePeak 13 yrs ago

Who chooses the properties?

That is, what INSPECTIONS are done?

Do you look at the roof? The neighborhood? Commuting options?

Who vets the tenants? (If something goes wrong, who suffers)

brentm 13 yrs ago

We have offices in Atlanta and Dallas, our team identifies teh properties, a full inspction process is undertaken then all works costed before we commit to buying the property. Our property managers also reveiw the property to assess it for rent before we buy. We check the roof, the a/c, the foundations, the plumbing, guttering and much more. We only buy in midddle and upper suburbs ensurng the neighbourhood good areas, we also look at schooling as that is a major selling point.

brentm 13 yrs ago

The tenants are vetting by the property managers, each tenant must pass a credit check and provide between 1-3 months security deposit

OffThePeak 13 yrs ago

Okay...

But the Landlord takes all the risk - no penalty if the tenants prove bad

brentm 13 yrs ago

That is correct, which is how it is the world over, I dont know of a market where the property agent takes responsibility for the tenant. In the USA everyone has a credit score and it is a very detailed report that they can't hide from, it details all their past history right down to outstanding credit card payments, past peformance at other rental properties, any problems with the law etc. It is actually very useful as a landlord.

OffThePeak 13 yrs ago

OK.

I am msot happy when I have met the tenant(s) and had a chance to speak with them. I don't like to rely on "scores", but some notion of the local employment situation and my own intuition about how the tenants responds to questions. I also want to reassure that tenant that we will be sensible landlords.

An agent who is trying to maximise their fees, because they take no risk may make different judgements.

If the agent is also collecting the rent, the fair way to do it, would not be for them to take their fee (1/2 month, 10%, or whatever it is) upfront, but rather as an equivalent percentage of each month's collected rents.

If I was dealing with a rental agent halfway around the world, I would want to negotiate that more-fair fee arrangement.

brentm 13 yrs ago

Understand your concerns, the arangemnet we have is if the tenant breaks the lease we don't pay a release fee to the agent

steveps 12 yrs ago

Hello,

It is important to do the research. The country is so big and economic recovery is patchy. Places like Detroit and New York state are best avoided. I prefer Florida and Atlanta - depends on your price points.

I usually prefer US property in Orlando, Florida. My clients have enjoyed good returns - yields around 8-10% with capital growth around 10% pa. Orlando is on the recovery road and nice properties in $80-140K. We assist through whole process and property management.

Regards,

Steveps

Ed 12 yrs ago

Unfortunately that is misleading...

There are literally millions of foreclosed properties being held off the market by banks in an attempt to force prices higher... and more homes are being added to the list

http://www.zerohedge.com/news/so-much-housing-has-bottomed-shadow-housing-inventory-resumes-upward-climb

http://www.zerohedge.com/news/goldman-housings-false-dawn

How can housing the US possibly be recovering when:

- GDP is dropping and at near stall speed

- Unemployment is still horrible

- record numbers are on food stamps

- students are coming out of university with 6 figure loan repayments and jobs at Starbucks (if they are lucky)

Reminds of the nauseatingly repetitive 'Green Shoots'

traineeinvestor 12 yrs ago

The thing that may pundits forget is that there is no "US" housing market - it's many different markets. Lumping (as examples) Detroit with Silicon Valley is just silly. The former is (IMHO) in a state of potentially terminal decline while the latter is booming.

From what I can gather, some cities/states are recovering (or at least stable) while others are still suffering from unsold inventory, high real estate taxes and demand limiting factors such as unemployment. That said, the total number of people employed in the US has recovered from its 2009 lows and is still rising (the unemployment rate remains high because the working population is also growing), household debt levels are continuing to fall, GDP is growing (at a pathetic rate) and interest rates (affordability) are very favourable to home buyers - in effect the demand side is clearly improving.

The big issues remain excessive government spending (federal, state and local), student loan levels (which delay the ability to save for a deposit), the backlog in inventory and government policies which discourage people from starting their own businesses or taking on employees.

Ed 12 yrs ago

Another issue with the US property market(s).... is that millions of baby boomers are retiring... and from what I am reading many of them are unloading their large houses onto the market and downsizing...

The problem is being exacerbated by the fact that pensioners are being decimated by Bernanke's ZIRP policy (I see that Calpers needs 7.5% returns to fund obligations - they returned 1% last year...)...

So that means that to make ends meet no doubt more pensioners will be forced to sell into a bad market.

OffThePeak 12 yrs ago

Sure, it is hard from someone who has a great job in Silicon Valley,

to "arb" his housing costs by moving to a cheap property in Detroit.

And it has been the loss of jobs in the second location, which has caused the population of the Motor City to fall by 2/3rds since the early 1950's.

Still, Americans move around quite a lot, and so do employers, so this does tend to even out some of the differences in property values.

The main thing people have missed out the US market is: Walkable Communities with Jobs have held up reasonably well, while Suburban areas, especially those in outer ring areas requiring long commutes (to jobs) have suffered mightily.

Essentially, Americans are waking up to the severe damage that car-addiction has done to their economy.

If you want to buy in America, look for a location where you do not absolutely require a car to get around. Those areas where cars are not essential (if they have jobs) will fare best.

traineeinvestor 12 yrs ago

@ Ed, with respect the predicted impact of the baby boomers on housing (and equities for that matter) does not stand up to even basic scruitiny - a simple look at the demographics show that the US working age population is still growing and is expected to grow faster than the baby boomers are retiring (or passing on) - much faster.

The combination of growing total population, growing working age population, growing number of families and a continuation of the trend towards smaller family sizes mean that total housing demand in the US will continue to grow. Unless a huge number of people are going to be sleeping on the streets it has to.

The open questions are (i) what form that housing will take - my HK$0.02 worth is that we will see more dense housing units and a preference for shorter communting times as OffThePeak suggests and (ii) which parts of the US will benefit the most - it won't be an even distribution.

Some demographic data here: http://www.fas.org/sgp/crs/misc/RL32701.pdf

I've just about persuaded myself that maybe investing in the US is worth revisiting. Maybe.

elsdon 12 yrs ago

@traineeinvestor,

That's interesting.. regarding the unemployment/jobs report.. I wonder how genuine it is. Just some data by industry:

http://www.bls.gov/news.release/empsit.t14.htm

It's almost up across the board, in every industry. I'm not quite sure how that's possible..?

traineeinvestor 12 yrs ago

@ elsdon - the American economy is growing, it's just not growinga s fast as people would like to absorb all the new entrants to the work force. Also, there is widespread anecdotal evidence that incomes for many of the jobs being created are not as high in real terms as they once were.

Ed 12 yrs ago

US population is growing... but they have far fewer well-paying job prospects... I am reading all sorts of data that indicate the real income of Americans has plummeted in recent decades... and it is worsening....

That doesn't bode well for the housing market...

Elsdon... I agree... many numbers across the board are being manipulated, spun by the PR hacks, and in some instances there are outright lies being published... politics are of course involved but also this is a concerted effort to restart the 'machine'

Unfortunately it is not working - the problem is not confidence - the problem is that growth without money printing... has stopped. The system needs a reset - but a reset now that the problems are so massive would be catastrophic...

Doesn't matter how much politicos try to spin this - there are no jobs - and the middle and lower classes are suffering - and they don't buy the bs... and increasingly they are not buying anything - bad news for a US economy that is 70% consumer purchasing...

And I think very bad news for housing... I suspect there will not be a recovery anytime soon

Note... it took nearly 3 decades for housing prices to regain their pre-depression levels in the US...

That said... the US is printing like crazy... better to own property than cash, stocks or bonds if hyperinflation strikes...

traineeinvestor 12 yrs ago

I'd certainly agree that the American middle class is being hollowed out - Obummer Care being the next attack on their finances: http://finance.yahoo.com/blogs/daily-ticker/taxes-going-pay-pay-obamacare-145413745.html In addition to the direct taxes, many of these will result in costs being passed through to consumers - hikes in the cost of prescription and insurance are inevitable. Never mind the reduction in choice of doctor etc

Getting back to housing, one way or another all those additional people have to live somewhere. Most of them have jobs and the number of employed people is growing.

Ed 12 yrs ago

TI: I could be wrong but my long term outlook for the US (10 yrs or so)... is that the country is going to see increased polarization of wealth... so that ultimately you have something that resembles say Manila... with pockets of vast wealth... a very small middle class... then the masses living in utter destitution...

Alternatively the masses turn away from Dancing with Stars and American Idol and revolt against the above... it is very important not to miss an episode of either of these so I see Door Number One as the more likely outcome.

Now how to play this... invest in slums?

OffThePeak 12 yrs ago

American is going through a Bad Patch now.

If the people wake up before it is too late, it is not hopelesss.

But they are heavily brainwashed by the (hopeless) mainstream media,

and time is running out.

If the country splits into pieces, some pieces may do okay, others will have widespread suffering.

traineeinvestor 12 yrs ago

@ Ed - a growing population and a growing number of people of working age will raise a number if issues - increased demand for housing BUT an increased supply of workers. I'm not sure how it will pan out but all those people will have to live somewhere.

I do worry about the polarisation of wealth. Not only does it tend to result in a mroe fractious society but historically it often results in punitive and stupid laws and taxes being introduced on the grounds of "fairness" which make everyone worse off. George Bush senior's tax on wealth being a classic example. The staggeringly high marginal tax rates of pre-Thatcher Britain being another. Both policies did more harm than good - and not just to the "rich".

Solutions? No easy ones but the one really really obvious thing they could do is repeal a lot of useless laws that make it so hard for people to start new businesses. Simplifying the tax code would be another easy one as would abolishing defined benefit retirement schemes. Limiting the non-academic payrolls of universities would be another. I'm not holding my breath.

elsdon 12 yrs ago

I think the US needs a major reset to become a nation that produces again. Right now, they import everything and export very little tangible goods. (besides 'freedom')

A major financial reset in the US would make manufacturing viable again in the US, they need to look at minimum wages again, unions, and get over themselves. There is nothing wrong with building something in a factory, I don't know why they brainwashed themselves into thinking that its an honourless job for third world countries.

Production is one thing. Consumption is another. I wonder how consumer spending is doing? Isn't much point loosening business laws if nobody to allow small businesses if there is nobody to sell to..

OffThePeak 12 yrs ago

Solutions?

"No easy ones but the one really really obvious thing they could do is repeal a lot of useless laws that make it so hard for people to start new businesses"

===

That might help.

But a serious problem IMHO is how Wealth is being concentrated in the Top 1%, who are gaining a bigger and bigger slice of the Total US wealth.

So why not have a 1% pa tax on wealth above say $2 million, and a 2% pa tax on wealth above $10 Million?

Once the concentration returns to historical levels, the tax could automatically be cancelled.

At the same time, spending in "defense" (the War Industry) needs to be cut back sharply, and also on security. Most of the events which have inspired this spending seem to have been planned and executed by either the CIA, Mossad, or the military themselves. The Truth is slowing getting out, and is available now to those who are willing to look for it.

elsdon 12 yrs ago

haha OffThePeak.. never figured you for a 9-11 conspiracy tin foil hat guy!

Insights into the man.

Ed 12 yrs ago

I haven clamoring on about this for years ... and my predictions have pretty much come true...

The problem with America is it has become a crony capitalist / fascist nation... corporations completely own the government legally bribing them through their lobbyists...

Another method of controlling the government is through offering government officials (often regulators) high paying jobs in industry once they come out of government service - of course the high paying jobs are contingent on pushing through policy that is favourable to the corporations involved...

Case in point - how many people who were involved in new banking regulations moved into high paying banking jobs immediately afterwards?

There are of course many other problems in the US that are perhaps unsolvable... but until they are able to stop the enormous legal bribery that is occurring there ... I think they will continue on their downward spiral...

BTW - 61% of every dollar the US spends is now coming off the Fed's printing press... and they can't stop because if they do... interest rates would need to increase to attract takers... imagine the annual payments on 16 trillion dollars at say 5%?

OffThePeak 12 yrs ago

"never figured you for a 9-11 conspiracy tin foil hat guy!"

Do the work, before you criticise.

Tell me what happened to Tower 7, then we can have a discussion about 911.

If you believe the stories in the mainstream media, I have a bridge to sell you in Brooklyn.

No you really want to wait until it is Too Late, before you wake up?

"imagine the annual payments on 16 trillion dollars at say 5%?"

The debt will never be repaid (at full face.) It is mathematically impossible. Already the Social Security system is warning people that they are unlikely to get the full benefits they have been promised.

traineeinvestor 12 yrs ago

@ OffThePeak - wealth taxes are taxing income that has already been taxed. That is objectionable on fairness grounds. If more taxes are needed, then remove many of the exemptions and raise the rates - but even if rasing taxes had no impact on the rest of the economy. no amount of additional taxes will close the gap - it is simply too big and growing too fast.

Here's a better idea - replace America's citizen and domicile based tax regime with a regime that taxes based on ownership (like many other developed countries) and has a tax credit/imputation system like Australia's. The result would be that US companies have reduced incentives to manufacture overseas, the need to lock up huge sums of cash either outside America or inside listed companies in America disappear, and a lot of cash would be shipped back to America and distributed to shareholders - the biggest of which are the pension plans, 401Ks and other retirement accounts - in effect most of the cash would end up in the hands of individual investors (either directly or indirectly). You will also see a significant drop in transfer pricing schemes.

If you want and example of the absurdity of US tax law in action: http://www.commentarymagazine.com/2012/07/22/value-0-taxes-40-million-bald-eagle-irs-robert-rauschenberg/

I agree 100% that the debt will never be repaid - they will continue defaulting by continuing to "debauch" the currency (Lenin's term for it). It also means that we may see continued low interest rates (negative in real terms) for much longer than a lot of people think - right up to the point where so much money has been printed that nobody wants to own USD.

The US is not far from the point where "mandatory" spending will exceed total Federal income. The continued erosion of the real value of government entitlement programmes will continue to decline - it has to. They can print paper but they can't create wealth out of thin air.

@ Ed - The problem with the allegations that the US government basically works for the elite/major corporates is that most of the regulations that are passed actually work against their intrests - FATCA, the PATRIOT Act, Dodd Frank, Obummer Care, JOBS Act etc - all of these hurt wealthy people, banks and large corporations. many of them hurt a lot of other people as well - people in need of medical services and small business owners among other. Who do they benefit? Civil servants, regulators and lawyers - all of whom get a lot more work to do.

@ Ed - the practice of senior (and not so senior) government figures going to the private sector has been going on for decades. My HK$0.02 worth is that there should be a longer rest period between leaving government service and taking a private sector job in the same industry as the original job. It's probably not practical though.

It makes me want to go and buy some gold coins....and a shotgun...and another property....

elsdon 12 yrs ago

Hahah I still think OffThePeak has some great reads.. the 9-11 thing, in his defense, I haven't looked into.. A brief google later, I have been doing some reading on the topic and I have to say.. It is pretty interesting.

I haven't seen any conclusive evidence but even based off my early uni days science electives it does look fishy.

It's sort of amazing that the entire time, real estate in NYC held pretty strong tracking back against the market..

OffThePeak 12 yrs ago

"wealth taxes are taxing income that has already been taxed. That is objectionable on fairness grounds."

Other countries do it. France is an example. Sweden is another.

The problem with rising wealth concentration is that it saps demand out of the economy. As the wealth of the US middle class shrinks, they can afford to buy less and less products, and the whole economy implodes. That is exactly what is happening in the US over the last half decade or so.

Spread the wealth somewhat more evenly, and demand will return.

But of course, the elits now control legislators in Washington, so this idea is unlikely to be seriously considered, despite soem evidence that it will work.

OffThePeak 12 yrs ago

"Hahah I still think OffThePeak has some great reads.. the 9-11 thing, in his defense, I haven't looked into.. A brief google later, I have been doing some reading on the topic and I have to say.. It is pretty interesting.:

Elsdon, the number of people who think 911 was "an inside job" is rising as the evidence is examined. Of course, the mainstreamers do not want the core assumptions to be questioned.

I have been chased from one website for simply trying to present the evidence in an even-handed way, and seen some people desert another website when people began to look at the conspiracy seriously. But once you look closely, as I have done, there is definitely a strong case to be made. There are just too many holes in the official story. The two big ones (to start looking at) are:

+ What happened to Tower 7,

+ Where is the evidence that an aircraft really hit the Pentagon

If you look closely at these two, you will see th official story cannot be belived.

WHY IT WAS DONE, is another complex question that is beyond the scope that I want to discuss here.

unattendedbag 12 yrs ago

OTP,

If, as you say, 911 was an inside job, than it would have required the coordinated effort of 100s if not 1000s of people. Do really believe that a 1000 or more people could all keep this whole thing a secret?

Work your way backwards and think of all the planning and coordination invovled? Think of how many people you would have to trust to not only do the job well, but keep their mouths shut about it! There is simply no way that anyone or any organization could pull off something the size and scale of 9/11.

OffThePeak 12 yrs ago

Not everyone was told the full story. People were only told what they needed to know.

Go on the web, and you will find many stories of people being silenced in various ways (with some making "the ultimate sacrifice" - when such a threat is real, people stay quiet) - Still, the story is leaking out and the real facts being discovered.

If you want me to comment more, do some research on Tower 7, and on the "missing" pieces of the supposed aircraft that hit the pentagon. If you can explain those two parts of the puzzle, then we can discuss the rest.

You can start here:

https://youtu.be/iEuJimaumW4?si=pyUu6OccEF261lQs

Do you find anything suspicious or alarming in this?

I used to work in WTC, on the 47th floor, so I have followed this story over the years

unattendedbag 12 yrs ago

I have followed the story for years as well, and am very aware of the conspiracy theories out there. It's easy to sit back and shoot holes in any senerio, both real and othewise.

Why don't you offer up your version of what happened? And please be specific so that every minute detail of your story can be scrutinised in the same way

.

Please begin your version of the event with who hatched the plan and who was included in the initial planning stage and than go from there. And then offer up what you think happened to tower 7 and the pentagon.

And why are you isolating tower 7 and the pentagon? Do you think the entire conspiracy plan was to fly planes into tower 1 and 2 and than detonate bombs in tower 7? That makes no sense. Who really cares if tower 7 goes down? Why waste any time with tower 7?

And if the plan was to fly planes into tower 1 and tower 2...than why not fly planes into the pentagon? Why use a missile on one target and a plane on the others?

traineeinvestor 12 yrs ago

@ OffThePeak

If Washington is controlled by the "elite", then thet elite is not large corporates or the seriously wealthy - look at all the recent legislation that has been passed. Just about all of it hurts businesses (in particualr banks and healthcare sector) and wealthy individuals. FATCA basically deems all US persons witrh assets outside the US as criminals until proven otherwise and imposes massive compliance costs on financial institutions outside the US - many of which will continue even if they refuse to take on US customers (which many will not do any more). Obummer Care imposes huge additional taxes and a substantial administrative burden on all employers, all suppliers of medical devices and health services. There are planty of other examples passed under both Republican and Democrat presidencies. Whoever the elite are, it is not large corporates (possibly excepting the oil industry which has managed to cling on to some tax perks which originated in the 1950s or 1960s (can't remember the exact date)) and it is definitely not people with overseas assets.

On double taxation - just because someone else does something does not make it right. There have been several instances of civil servants flouting the Buildings Ordinance - does that make it right for everyone to do it? We see lots of people spitting in the street, leaving the engines running while parked, smoking in no-smoking areas and a lot of other things that nobody should be doing. Just because some people do it, does not mean its right.

Another point about the double tax issue - most of the countries which recognise the unfairness of taxing the same income twice have done much better since the current financial crisis began in 2007 than countries which tax income twice - Australia, New Zealand, Malaysia and Hong Kong among them. Sure there are other factors involved, but its a strong correlation.

In terms of addressing inequality, simply taking from the rich does not help the rest of us. Given the extent of overspending by governments by the US, any extra tax revenue gained (which might be none or negative) will get chewed up in additional government administration, simply servicing debt etc. Previous periods in history when taxing the rich into submission has been the practised mantra of the day have been pretty miserable times for everybody. If we want to narrow the gap and do so in a way that makes people from the lower and middle economic demographics better off, then make it easier for people to employ other people or start their own businesses. Some ideas to help the small guy:

Give small business owners a one time break from fees for a new business for the first few years.

Reduce and simplyfy the proceedures for getting licenses for a variety of new businesses (especially small scale ones). Big companies can afford to deal with this stuff. It's a disproportionate burden on smaller businesses

Put corporate taxes for owner run businesses on the same progressive scale as personal income taxes. This reduces the incetives to game the system and takes one of the costs of moving from being an employee to an entrepreneur off the table

Require universities to slash non-academic overhead and require all academic staff to spend twice as much time teaching as researching and publishing - this will slash the cost of a university education and substantially drop the amount of debt the typical student has when they graduate

Lots of other ideas out there.

OffThePeak 12 yrs ago

I have better things to do with my time than try to Preach to the not-easily converted. There are many people and websites out there that can do a far better job than I can.

Let me leave it at this: As far as I am concerned, the Official Story of what happen on 911 has two glaring holes in it:

+ Tower 7 (if it was a controlled demolition, as its owner has said, then why was the building pre-prepared for this?)

+ The Pentagon (there were no remains of a large passenger aircraft found, so what crashed into it? Why were the lies told.)

If you start with these two, you can begin to unravel the official line, and then many, many questions will arrive.

That's really all I want to say. As I said, I would rather comment on things which have a more friendly audience here.

unattendedbag 12 yrs ago

OTP,

The presence of airplane debris outside the Pentagon after the event is confirmed by photographs, videos and eyewitness testimony.

Do you suggest that people "planted" the airplane debris?

This should answer all your questions...

http://www.journalof911studies.com/volume/2010/Wyndham1.pdf

Ed 12 yrs ago

The Truth About How The Fed Has Destroyed The Housing Market

http://www.zerohedge.com/news/truth-about-how-fed-has-destroyed-housing-market

Loyd Grossman is Miss Venezuela 12 yrs ago

OTP. I know people who were close by at the time. My former bosses missed staying at the World Trade Centre because of a last minute decision. A lady in the village I am from in Yorkshire lost two children that day. One was visiting the other who worked there. There is no way on this earth that this was an inside job.

traineeinvestor 12 yrs ago

@ Ed - regardless of whether or not the US housing market as bottomed (IMHO, it has in some areas and has further to go in others), and regardless of the Fed's role in creating and worsening the mess (IMHO, the Fed is cuplable, but so are legislators, regulators, lenders, agents, borrowers and investors), when they make a statement like this:

"...the perfectly logical idea that a number as large as the total number of underwater mortgages may and will end up on the market as foreclosures..."

you have to wonder. Historically, there have been plenty of instances where large numbers of underwater properties did not end up as foreclosures - HK in 1997-2003, the UK in the early 1990s, Australia in the early 1990s, New Zealand after the 1987 crash - and certainly many others. The real world experience has been that people will move heaven and earth to hang on to their homes no matter how much equity has been destroyed. Put simply, historical fact tells us that this is just a wrong statement - it could happen but history suggests that it wont.

If ZH is right, it is not because of the mere fact that so many homes are underwater - unless you believe that "this time it's different".

OffThePeak 12 yrs ago

My opinion is;

There is no way in the world that it was not.

After the Kennedy assassination facts have fully come out, there will be a a flood of info on 9/11. Already, the number of people who believe the officila story is sliding and sliding.

UAD,

For every report like that, I could find 10 saying the evidence is not there for an aircraft.

Example: Where is the impact of the wings on the Pentagon building?

So many people have been hushed up, the truth has been slow to come out,

The Truthers call that Scientist-for-911-Truth paper: "same old, same old", repeating old misinformation:

http://pilotsfor911truth.org/forum/index.php?showtopic=21569&st=60

And another:

http://wtcdemolition.com/blog/node/3320

Ed 12 yrs ago

So much for the recovery ... along with some scathing comments about the rat bastard criminal Jon Corzine... who apparently is going to walk free after carrying out the biggest bank heist in history

traineeinvestor 12 yrs ago

Absolutely - Crookedzine should be in jail for a very long time.

solomani 11 yrs ago

Necromancing an old thread since I am looking at this again. Any recomendations on reputable vendors to help sort it out - from personal experience if anyone has any?

Also, my secondary interest is to use the property(s) to get a green card. I believe this is possible - anyone know if this is the case and/or have done it?

OffThePeak 11 yrs ago

First, I will repeat some comments from above:

(634 days ago):

1/

The main thing people have missed out the US market is: Walkable Communities with Jobs have held up reasonably well, while Suburban areas, especially those in outer ring areas requiring long commutes (to jobs) have suffered mightily.

Essentially, Americans are waking up to the severe damage that car-addiction has done to their economy.

If you want to buy in America, look for a location where you do not absolutely require a car to get around. Those areas where cars are not essential (if they have jobs) will fare best.

2/

American is going through a Bad Patch now.

If the people wake up before it is too late, it is not hopelesss.

But they are heavily brainwashed by the (hopeless) mainstream media,

and time is running out.

If the country splits into pieces, some pieces may do okay, others will have widespread suffering.

(Today):

My charts tell me that the Upturn in the USA is ending, or has ended.

My suggestiion : I would be very careful about buying now... anywhere in the US.

We may see a civil war, or other major dsirurbances starting sometime in the next 2-3 years.

punter 11 yrs ago

Any specific location in mind? Timeframe? Amount of investment in mind? These are important considerations.

solomani 11 yrs ago

250k USD, potentially more, no preference but not interested in buying slum apartments and depending on government rent for those said departments. Which seems to be the way its mostly sold here in HK.

Would love a place or two in Seattle area but that didn't seem overly affected by the GFC in terms of house prices.

OffThePeak 11 yrs ago

Mostly West Coast then?

Any views on California

punter 11 yrs ago

I have no personal experience, especially in the Seattle area. However, I don't see how you can use a property you will buy to earn a green card/residency. All investment visas (that I know of) in the US are related to jobs creation.

hamzan 11 yrs ago

Hi guys..i was gonna start a new thread but then saw this one has been active for quite some time

I wanted to seek some advice regarding these property investment companies springing up in town these days

I had a chance to visit the seminar of one of these companies and basically they claim they can help us buy and manage properties in the US for as low as 25000USD and the reason they claim it is so low is that they are bank foreclosed. I noticed someone promoting them in this thread aswell. While it does sound appealing i do understand the risks behind it. Was just wondering what you guys think about it. Any personal experiences? Would you call these companies a fraud?

punter 11 yrs ago

Assume: (1) Average home price in the location you want to buy is at 100K USD (even if bank foreclosed), (2) You can get financing at 20% down, (3) You can purchase around 10 homes, (4) Can rent it out at around 1,200/Month, (5) Can fully employ 10 americans, (6) Can maintain the business for years.

Then you can use it to earn a green card. Play with the numbers, and maybe you can make it work.

OffThePeak 11 yrs ago

You can get very cheap (foreclosed) homes in Detroit.

Even at under $10,000 - 20,000

Buy A Home Under $100 / When a City Hits Rockbottom

Can cheap property & Artists revive a shrinking city?

================================

Commodity Watch Radio has done an Podcast interview with Mitch Cope, of "the $100 House" Fame.

MP3 : http://www.podbean.com/podcast-download?b=2516&f=http://commoditywatch.podbean.com/mf/web/v7yhuw/Powerhouse.mp3

The trick is finding a decent tenant, who will look after it.

punter 11 yrs ago

If you buy a home at 10K, how much are you going to rent it out for? What are the chances that it will appreciate in price in the future? How much do you need to spend to make it livable?

If you just buy a home, with 250,000 on hand, you can buy yours in cash in many locations (but not in a good location in Seattle). But Solomani was asking if he could use it to earn a greencard.

OffThePeak 11 yrs ago

What is more likely??

+ Appreciation of value

+ Abandonment, and gutting

+ Having it burned down, with no insurance

Listen to the interview ... All three are possible,

OffThePeak 11 yrs ago

Greg Hunter interviews Fabian Calvo - on US Real Estate etc

MP3: http://jaytaylormedia.com/media/taylor20140422-2.mp3

Bundy ranch discussion - US property for China?

Is this the way the US keeps "its creditor" happy?

"We need a financial Rambo to expose what is going on."

In the long run, the US currency may be backed by property.

The Fed has been buying back toxic Property-backed debt from China.

The Fed is "lying about how much debt they are buying"

Us Bankers are buying murdered to prevent a Financial Snowden coming forward

Calvo sees US property as very risky - it's a Pump-and-Dump.

Blackstone / Carrington cannot rent their RE at decent yields.

So they are now selling off to subprime buyers, and planning...

"You will see the US Real go buck wild..." in desperate last push.

Real investors are scared to death of the imploding US dollar.

In the next crisis "Everything will implode at once": R.E., USD, etc

"We don't have sensible policy, or decent leadership.

We are making the same mistakes (as 2005-8) all over again."

OffThePeak 11 yrs ago

Be Careful...

Calvi thinks you can make money, if you buy now and sell a few months later.

How many people are so nimble?

(especially when high transaction costs are involved)

Ed 11 yrs ago

OTP - nothing new here... as was pointed out ad nauseam there never was a recovery in the US housing market .... there was the following:

- Bernanke increasing QE by 45B/month specifically stating this cash was being directed at the housing market

- institutional money picked up these billions at ZIRP --- with the understanding that they MUST use it to buy property

- the intent was to generate some hype about property recovering

- that of course excites the greedy hordes who want to believe the hype --- so some sideline cash joined the fray speculating on homes - see the HUGE percentages of all cash buys

- the organic growth of the market did not budget -- that's because graduating students did not enter the market due to massive debts and no decent jobs ---- also salaries are down nearly 10% in recent years --- so the average person is broke and can't buy a house

- of course this was a Fed induced bubble --- an attempt to kick-start the housing market

But of course the headwinds are hurricane force --- 45 billion per month could fight them for awhile but as predicted this hyped market would not result in a recovery --- the fundamentals that would support a recovery are broken i.e. people want to buy but they are broke and without good jobs....

And here we are --- all those pundits after the fact stating what was obvious from day one of this 'recovery'

The smartest person in all of this would be a mate of mine who had a house in California but who lives overseas --- when he saw what Bernanke was doing his comment was 'when do you get a second chance'

Meaning --- he failed to sell into the earlier bubble --- but Bernanke's gift of billions had created a new bubble ---- and he closed his sale about 3 months ago soon after I sent him over some info -- FROM ZERO HEDGE.com --- that had contained some very negative signals for the US market....

And that is the value of not having faith in the MSM --- because the MSM lies --- the MSM is a propaganda tool of the Fed and the govt....

Be Careful....

OffThePeak 11 yrs ago

Ok, J.

Simple: Do not Property buy in the US :

Chances are: you will lose money (after transaction costs), or get trapped.

THAT is what "be careful" means in this case, I think.

traineeinvestor 11 yrs ago

While I have the highest respect for OTP's views, a reasonable case can be made for investing in US property:

1. the US population is growing - and is projected to keep growing for some time

2. the working age US population is growing - and is projected to keep growing for some time

3. the total wages earned by US workers has been climbing steadily for the last few years in both nominal and real terms

4. household formation rates have been depressed because of the GFC - at some stage catch up demand should kick in

5. work force participation rates are still well below historical averages and underemployment is still higher than historical averages - however, participation is improving

6. IMHO, while interest rates will increase at some point the increases will only happen in an environment where the economy is improving or inflation has reached politically unacceptable levels

7. there is a shortage of long dated debt good quality debt securities (held by pension plans, annuity issuers, life insurance companies etc). This is why the US 30 year long bond has done so well even when interest rates at the short/medium end of the yield curve have been rising. Assuming this continues, then interest rates paid by home owners at the longer end of the yield curve may not rise as fast as rates at the shorter end

8. the backlog of inventory (including the much exaggerated shadow inventory) has been steadily declining. In some areas it is now back to (or below) historical norms

There are of course many negatives - higher taxes at federal, state and local level, bankrupt local municipalities being high on the list. The doomsayers will point to any number of bad data points (and there are lots) but for the most part these are the same people who predicted the financial world would end in 2009 and, in the face of a growing world economy, have been saying the same thing continuously since then - claiming that "it can't last" and "if the Fed stopped printing and interest rates when to X% everything would collapse" which is exactly why the Fed will not stop printing and why interest rates will not go to X%. Sure we will have economic cycles and there will be booms and busts along the way but I would rather by buying in bad times than when everything is rosy and everyone is happy.

I do not view investment demand as being sufficiently predictable to assert as a positive or a negative with any degree of confidence. It is easy enough to make both bull and bear cases.

Last point - real estate in the US is not a homogenous market. The differences between cities and states are significant so do your homework. This also means that national statistics are not that helpful (e.g. the glut of decaying homes in Detroit is mixed with the acute shortage of homes in Silicon Valley).

Ed 11 yrs ago

The reality:

1. the US population is growing - and is projected to keep growing for some time

Egypt’s population is growing massively --- so should we buy property in Egypt?

2. the working age US population is growing - and is projected to keep growing for some time

Egypt’s working age population is growing but there are no jobs for them --- in the US there are few good jobs being created + the youth are saddled with over a trillion in student loan debt i.e. they won’t be buying homes

http://davidstockmanscontracorner.com/the-curated-jobs-report-actual-depression-and-bernankes-fraudulent-legacy/

3. the total wages earned by US workers has been climbing steadily for the last few years in both nominal and real terms

Not so:

According to every major data source, the vast majority of U.S. workers—including white-collar and blue-collar workers and those with and without a college degree—have endured more than a decade of wage stagnation. Wage growth has significantly underperformed productivity growth regardless of occupation, gender, race/ethnicity, or education level.

During the Great Recession and its aftermath (i.e., between 2007 and 2012), wages fell for the entire bottom 70 percent of the wage distribution, despite productivity growth of 7.7 percent.

More http://www.epi.org/publication/a-decade-of-flat-wages-the-key-barrier-to-shared-prosperity-and-a-rising-middle-class/

The first three months of 2013 saw wages fall 3.8 percent – the largest drop in hourly pay in the 65-year history of that statistic – despite an increase in worker productivity. With high unemployment freeing employers from fears that their employees will turn elsewhere, the U.S. recovery has been marked by a decoupling of rising productivity from stagnant wages.

http://thinkprogress.org/economy/2013/06/07/2121581/first-quarter-of-2013-saw-largest-wage-drop-ever/

4. household formation rates have been depressed because of the GFC - at some stage catch up demand should kick in

We are 6 years into the crisis --- and things are getting worse - US GDP 0.1% last quarter

5. work force participation rates are still well below historical averages and underemployment is still higher than historical averages - however, participation is improving

Really?

US labor-force participation rate falls sharply in April - Workforce Participation at 36-Year Low

http://www.marketwatch.com/story/us-labor-force-participation-rate-falls-sharply-in-april-2014-05-02

6. IMHO, while interest rates will increase at some point the increases will only happen in an environment where the economy is improving or inflation has reached politically unacceptable levels

US GDP 0.1% in Q1…. Interest rates cannot go much higher --- work out the debt servicing on 17 trillion dollars with interest rates at a more normal 5%... impossible

7. there is a shortage of long dated debt good quality debt securities (held by pension plans, annuity issuers, life insurance companies etc). This is why the US 30 year long bond has done so well even when interest rates at the short/medium end of the yield curve have been rising. Assuming this continues, then interest rates paid by home owners at the longer end of the yield curve may not rise as fast as rates at the shorter end

8. the backlog of inventory (including the much exaggerated shadow inventory) has been steadily declining. In some areas it is now back to (or below) historical norms

The housing market is smoke and mirrors – Bernanke’s 45 billion per month distorted the market as Black Rock and others bought up properties – the organic component of the market remains moribund because the job market remains horrible - uni grads working part time or in low paying service jobs do not buy homes

Add to this 50 million people are on Food Stamps and record numbers on disability - they don't buy homes.

The US housing 'recovery' is smoke and mirrors --- it has been all about Bernanke printing billions... take that away and the house of cards collapses...

And as we are seeing that is starting to happen.

I would not touch this heap of dung even if the Fed gave me billions of ZIRP cash...

And those who believed the hype of recovery --- well they are about to find out what negative equity is all about.

traineeinvestor 11 yrs ago

Two attempts to post a more detailed response were lost when I hit "reply" so I'll limit myself to a few points (since we have disagreed on most of these before).

1. comparing Egypt and the US? Seriously? Differences in per capita GDP, rule of law, land title and a few other issues make that a very strange comparison

2. It is an indisputable fact that total US household income is rising: https://bber.unm.edu/econ/us-tpi.htm

The decline in average US household income is a different issue (there is more money being spread across a greater number of households). This will have an impact on affordability but not enough to offset the demographics and total weight of money. There is simply more people who need accommodation and collectively they have more income

3. You are correct on workforce participation rate - it has declined to around 63%, but off a larger population base, total employment numbers are still rising.

4. You make another good argument for interest rates not rising. The US govt needs negative real interest rates to continue which is a positive for real assets.

5. The people in the lower income groups are unlikely to be buying housing anyway so I am not sure what point you make here.

6. Inventory (including shadow inventory) continues to drop. Also, given that a lot of the so called shadow inventory is in places where few people want to live or is in appalling condition, the stats undoubtedly overstate the supply.

I have put my money where my mouth is and invested in US real estate (in a very modest way). Ask me in a few years time and I'll let you know how it went.

Ed 11 yrs ago

1. The point I am making re Egypt is that rising population is meaningless. Lots of places have rising populations yet they are dying - the US is joining them.

The US has rule of law? Hmmmm...

Not for the oligarchy - if so they why is Jon Corzine not in jail? Why is HSBC let off with a wrist slap for laundering billions of drug money? I could go on and on and on about rule of law. Why can the NSA violate the 4th amendment with impunity?

Rule of law only applies to the little guy - the guy dealing a dime bag of weed... he goes to jail --- if a bank finances drugs on a global scale they get a fine....

2. I suspect the numbers you posted are not inflation adjusted --- because I can find not a single source that indicates inflation adjusted median incomes have risen --- everything I see points to a drop of close to 10% --- in fact because CPI is rigged (i.e. it is not a true reflection of real inflation) the situation is FAR WORSE than even these articles indicate.

Here is the Real Median Income Chart for the USA from 1985 to end 2013 --- Source: US Department of Commerce Census Bureau - down nearly 10%

http://www.zerohedge.com/sites/default/files/images/user20289/imageroot/2013/12/MEHOINUSA672N_Max_630_378.png

From the same Gov Source: Labour Participation Rate remains absolutely horrible

http://www.zerohedge.com/sites/default/files/images/user20289/imageroot/2013/12/EMRATIO_Max_630_378_0.png

Full article: http://www.zerohedge.com/contributed/2014-01-16/three-points-refute-all-talk-recovery

Point of interest --- I had to search for 15 minutes before I could find that chart... I guess none of the big finance sites want to publish such negative info --- might burst the matrix....

3. Total employment numbers - the employment reports have been demonstrated to be a complete farce --- if someone gets a job working one hour a week that counts as a new job -- if that same person works a second job for 3 hours a week that gets counted as yet another job --- most of the new jobs are low paying service industry jobs... I could go further into this but this has been done to death already ...

If anyone is considering buying a US property and believes the US job situation is going to drive the market going forward --- and they don't dig deeper into the misleading numbers .... then when their investment into the bubble implodes they can look in the mirror for the reason why it all went wrong.

I have no skin either way in the US housing market --- in fact I'd rather not see it crash --- because when it does that almost certainly puts us back in a situation similar to 2008 --- but this time the Fed has used up its ammo --- there will be no bail outs this time around.

But I believe my analysis is dead on:

1. US housing prices were dropping month after month until Bernanke announced the extra $45B per month to try to stop the fall

2. Big players got in early taking ZIRP cash to buy foreclosures

3. Retail investors believing the hype followed

4. There has been little organic support in the market - as evidenced by the incredible number of cash buyers (speculators)

5. All the signs are there that the market has topped --- other than at the luxury end...

http://globaleconomicanalysis.blogspot.fr/2014/04/new-home-sales-plunge-145-its-not.html#C07gMxEjRZuilmwd.99

End of the day - I do not see how organic support for the market recovers --- when incomes are off --- students are coming out with huge debts and low paying jobs ---- GDP is floundering....

That says to me - stay away from this market.

I think the smart money got in when the Fed announced the $45B per month support for the market --- and is getting out now taking the money off the table....

Impossible to time this but given the signals I suspect this is the top or near the top.

traineeinvestor 11 yrs ago

Ed - thanks for posting a detailed reply. Needless to say I disagree with several points you make as well as your conclusions. America has a lot of serious issues but the right parts of it's housing market have been and should continue to be well supported.

Let's revisit this as and when I exit some of my investments.

OffThePeak 11 yrs ago

A reaction to comments by TI:

I can see those demographic factors may play out, PROVIDED ONLY if we are headed back to "business as usual",

but personally, I think the US is on a different path, and the risks of that "new path" will become apparent over the next 2-3 years and beyond.

What is clear already is that the US Job-creation part of the economy is broken, and you can see it in the falling rate of participation by the population in employment.

CHART: http://www.slate.com/content/dam/slate/blogs/moneybox/2014/05/02/april_jobs_report_we_added_288_000_new_jobs/bls_labor_force_participation.png.CROP.promovar-mediumlarge.png

"Dirty Secrets about the US economy":

http://hipcrime.blogspot.hk/2014/05/dirty-secrets-about-us-economy-that.html

"... unemployment rate tumbled 0.4 points to 6.3 percent. That's where the iffy news comes in—much of the drop happened because the labor force shrank by 800,000, driving the participation rate down to 62.8 percent. It hasn’t been that low since 1978, when women were still in the process of joining the workforce. . . the majority of jobs created are abysmal."

= UNQUOTE =

. . .

The participation rate FOR MEN has fallen to an all-time low, and it is exactly the wrong time to hit the economy with an expensive new program like Obamacare. New businesses will not want to start up, when they have to bear extra costs.

Meantime, the elite 1% are grabbing a bigger and bigger share of the pie - assisted by the Congress which is now almost wholly controlled big corporations, and the Israel lobby.

I fear that the US is headed towards a civil war, and if not that, higher and higher rates of taxes as the government and elites try to hold onto their rising share of a shrinking pie.

You might find Martin Armstrong's comments of interest:

+ Bubbles start from the Core and spread outwards

+ Empires collapse from the periphery towards the core

+ The USA will be the "last man standing"

+ Hyperinflation is not how empires collapse

+ The challenge now is to do with taxes - govt getting more and more aggressive

Ed 11 yrs ago

TI: to clarify.... I am not making the points ... the US government is:

Household incomes are down almost 10% http://www.zerohedge.com/sites/default/files/images/user20289/imageroot/2013/12/MEHOINUSA672N_Max_630_378.png

Labour Participation is off a cliff http://www.zerohedge.com/sites/default/files/images/user20289/imageroot/2013/12/EMRATIO_Max_630_378_0.png

I fail to see how you can have a real recovery when the job situation is so dire + the incomes of those with jobs is down nearly double digits.

We've had 6+ years of 'green shoots' and yet there are no green shoots.... I fail to see how this situation will improve in the coming months or years ---

But with Obama still in office there is always a reason for 'hope and change'..... :)

Ed 11 yrs ago

How interesting...

Trying to find an MSM source for the student loan nightmare which was reported by ZH yesterday (and I know how people don't like ZH so I thought I'd track down an MSM version)

The outstanding loans just hit a new record.... surely that is worthy of a bit of MSM space.... but nope.... can't print that number --- it's too negative.... (and I agree --- we must keep the CONfidence game going...)

But we are not MSM here so we can publish this stuff without busting the matrix which requires belief in a recovery.... and we prefer truths and facts vs spin here on AX....

So this is what I found:

Student debt increases to $1.1 trillion, borrowers lagging in home and auto buying

http://washingtonexaminer.com/student-debt-increases-to-1.1-trillion-borrowers-lagging-in-home-and-auto-buying/article/2548366

So grads are unable to buy homes because they are massively in debt and there are few 'bread-winning jobs' http://libertyalliance.com/2013/06/david-stockman-no-recovery-for-breadwinning-jobs/for-breadwinning-jobs/

That would seem to indicate that one of the key drivers of the housing market is busted.... and unlikely to be fixed anytime soon --- if ever...

Add to that the huge proportion of cash deals in the property market and you have what is known as a mega speculative bubble....

Ed 11 yrs ago

See the Bloomberg Charts:

Homebuilder Confidence Plunges To 12-Month Lows http://www.zerohedge.com/news/2014-05-15/homebuilder-confidence-plunges-12-month-lows

Ed 11 yrs ago

There are of course a lot of people with cash in the US --- surely you aware that the rich have become even more fabulously wealthy over the past 6 years?

My point is that people who buy homes with cash are generally speculators --- they are not end users --- and end users are what drive a healthy property market

“The cash buyers today mean that all is not well in the housing market,” said Clifford Rossi, finance professor at the University of Maryland’s Robert H. Smith School of Business. “First-time home buyers should make up 40 percent and we’re not seeing it because of mortgage rules.”

“In Manhattan, you have foreign buyers coming in and using properties as a second, third, fourth or fifth home and hedging risks in their home countries,” said Chris Mayer, a real estate professor at Columbia University Business School in New York.

http://www.zerohedge.com/news/2014-05-08/all-not-well-housing-market-all-cash-buyers-double-past-year-hit-record-high

Of course older people buy houses too --- but a major component of the market would be people in their early 30's... who are starting a family --- most people do not wait until 40+ to buy a house.

When you come out university with tens of thousands - often over 100k in debt --- and you are working part time --- or serving coffee at Starbucks... you will not be buying a house before 30 --- in fact you will not be buying a house ever if this is the 'new normal'

http://finance.yahoo.com/news/gen-yers-delay-first-time-104900279.html

Ed 11 yrs ago

Welcome to the Third World, Part 14: Homeowners Become Renters

This morning’s housing report was huge. As one representative headline put it: “Housing starts up sharply; permits highest since 2008″.

Dig just a little deeper and it’s still huge, though in a different way. Turns out that all the increase was in apartment building, while single family homes — the linchpin of what used to be thought of as the American Dream — actually fell yet again.

Here’s a brief but on-point analysis from the New York Times:

http://dollarcollapse.com/welcome-to-the-third-world/welcome-to-the-third-world-part-14-homeowners-become-renters/

Ed 11 yrs ago

Beneath The Headline Reports, Housing Starts Data Appear Bearish

Summary

- 99% of the increase in starts was for multi-family structures.

- An oversupply of rental units is developing.

- Flat single-family home starts reflect the already deterioration in home sales.

More http://seekingalpha.com/article/2223563-beneath-the-headline-reports-housing-starts-data-appear-bearish

Ed 11 yrs ago

This Chart Is The Fate of Housing In America As Student Loans Bankrupt A Whole Generation

A friend of mine is suffering from excruciating anticipatory pain. He’s heading to New York to attend his daughter’s graduation, which should be a glorious moment in life. But her commencement speaker is Fed Chair Janet Yellen. “Gotta find some thorazine to take before the ceremony,” he muttered. He paid for his daughter’s education. Not many students are that lucky.

Student loan balances soared 362% to $1.1 trillion since 2003, during a period when mortgage debt – including the effects of the current Housing Bubble 2 – rose “only” 65% to $8.2 trillion and credit card debt actually declined by 4.2% to $660 billion (chart). The burden of servicing that increasing pile of student loans is eating into other forms of borrowing and spending, such as the American classic, reckless consumption on credit cards, or the purchase of a home. And so the proportion of first-time buyers – the single most important sign of a healthy housing market – has been shrinking for years.

Recent graduates are facing a job situation that remains tough. The employment-population ratio for 25-34 year olds (chart) is on a similarly terrible trajectory as the EP ratio for the overall working-age population: It declined sharply from the employment peak in 2001 when 81.5% of the people in that age group were working. The ratio dipped below 78% in 2003, recovered a little, only to plunge in 2008, finally dropping below 74% in 2010. Since 2012, it has been recovering in fits and starts to a recent high of 76% earlier this year, only to drop again more recently. Like other Americans, this age group is having trouble finding jobs.

Over 70% of the students who are sitting through a commencement speech this spring have student loans. They will start their career, if any, with an average student loan balance of $33,000. Even when adjusted for inflation, it’s about twice as much as 20 years ago. Back then, only 43% of students graduated with student loans. After decades of red-hot tuition and fee increases, working your way through college in four years, the way I and many others did back in the day, has become a pipedream.

Every year, it gets worse. The Class of 2012 was the most indebted ever. Then the Class of 2013 took over that dubious honor, only to be trumped by the Class of 2014. Next year, the honor will go to the Class of 2015. Among the reasons for this fiasco: the way colleges are paid liberates them from both free-market and governmental constraints. They can charge whatever they want and get away with it because students can just go ahead and borrow it. Even noisy student protests with mass arrests trip up administrators only briefly. And through the student loan programs, designed with whatever intentions, the government is simply aiding and abetting colleges in extracting ever more money from the future lives of their students.

The equation might not have gone so horribly awry if each class of graduates had seen their incomes skyrocket in line with their student debt. But that’s a crummy joke. Between 2005 and 2012 – the last year for which this data set is available – the inflation-adjusted average student loan balance of graduates under 30 years old has soared 35% while the median annual income adjusted for inflation for college graduates between 25 and 34 years old has declined by 2.2%.

And this is what this torturous condition looks like: http://www.testosteronepit.com/home/2014/5/19/this-chart-is-the-fate-of-housing-in-america-as-student-loan.html

Now if I am looking at that graph...

and this one http://www.mybudget360.com/wp-content/uploads/2013/09/food-stamp-amount-paid-out.png

and this http://www.fbnstatic.com/static/managed/img/fb2/news/disableemplyed-chart.jpg

and http://i2.cdn.turner.com/money/dam/assets/130906122738-labor-participation-rate-historical-620xa.png

I am most definitely NOT long US property.... and good luck to anyone who is... because there is not a single fundamental supporting the position that US property is going to increase in value in the long run...

Also keep in mind --- interest rates are a record lows....

Ed 11 yrs ago

Housing recovery - really?

Economic recovery - how?

Note the source of this data: US Census Bureau

The Keynesian Economy In One Chart: Peak Real Median Income In USA=1999; 30 States=2004 Or Earlier; Washington DC=2012

Sometimes a chart is worth a thousand words, and this is one. Real Median household income peaked way back in 1999 at $56,000 and by 2012 it was down 9%—an unprecedented decline. It goes without saying that Washington’s Keynesian ministrations on the money printing and national debt front didn’t much help.

As also shown in the table below, 30 states have experienced a 10% or more decline since their peak year, and in 10 states the decline has ranged from 19% to 27%. Those figures do not represent merely a dip or even an extended setback. They amount to a devastating shrinkage in the standard of living being experienced by tens of millions of households.

Yet the mainstream narrative blathers on that the business cycle expansion is back on track and that last month’s numbers were a tad better than the month before. The table below says that’s all Keynesian bread and circuses—-the fleeting uptick interval between the serial bubbles and busts that our Washington overlords have condemned the people to endure.

http://davidstockmanscontracorner.com/the-keynesian-economy-in-one-chart-peak-median-real-income-in-usa1999-30-states-2004-or-earlier-washington-dc2012/?utm_source=wysija&utm_medium=email&utm_campaign=Mailing+List+Mid+Day+Wednesday

OffThePeak 11 yrs ago

"They will start their career, if any, with an average student loan balance of $33,000. Even when adjusted for inflation, it’s about twice as much as 20 years ago. Back then, only 43% of students graduated with student loans...."

Certainly not TWICE the value

These students are being "educated" for an economy that no longer exists.

In fact, their education is more about brain-washing than anything else.

And they come out of college with unrealistic expectations that will be impossible to meet for many

Ed 11 yrs ago

Housing Bubble 2 Already Collapsing for the 99%

Wednesday, May 28, 2014 at 2:39AM

This is precisely what shouldn’t have happened but was destined to happen: Sales of existing homes have gotten clobbered since last fall. At first, the Fiscal Cliff and the threat of a US government default – remember those zany times? – were blamed, then polar vortices were blamed even while home sales in California, where the weather had been gorgeous all winter, plunged more than elsewhere.

Then it spread to new-home sales: in April, they dropped 4.7% from a year ago, after March's year-over-year decline of 4.9%, and February's 2.8%. Not a good sign: the April hit was worse than February's, when it was the weather’s fault. Yet April should be the busiest month of the year (excellent brief video by Lee Adler on this debacle).

We have already seen that in some markets, in California for example, sales have collapsed at the lower two-thirds of the price range, with the upper third thriving. People who earn median incomes are increasingly priced out of the market, and many potential first-time buyers have little chance of getting in. In San Diego, for example, sales of homes below $200,000 plunged 46% while the upper end is doing just fine. But the upper end is small, and they don’t like to buy median homes [read… Housing Bubble 2 Veers Elegantly Toward Housing Bust 2]

Yet it’s going according to the Fed’s plan. Its policies – nearly free and unlimited amounts of capital for those with access to it – have created enormous wealth in a minuscule part of the population by inflating ferocious asset bubbles, including in housing. But now electronic real-estate broker Redfin has made it official: in 2014 through April, sales of the most expensive 1% of homes have soared 21.1% year over year, while sales in the lower 99% have dropped 7.6%.

And it wasn’t the first year. In 2013, sales of 1%-homes jumped 35.7%, while sales of the other 99% rose 10.1%. And in 2012, sales of 1%-homes rose 17.5%, while the rest of the market inched up a mere 2.9%.

The downtrodden who have to make do with buying the remaining 99% of the homes, these modern hoi polloi so to speak, whose real incomes have stagnated or declined as they face the soaring home prices of the Fed’s second housing bubble in less than a decade, to be financed at still historically low mortgage rates, well, they’ve hit a wall.

But at least luxury is thriving. In 9 of the 29 markets Redfin tracked, sales of the priciest 1% of homes jumped by over 50%. The top three were all here in the Bay Area – not surprisingly, given the miracles of the worldwide money transfer machine of IPOs and multi-billion-dollar startup acquisitions [Momentum Stock Fiasco Pricks San Francisco Housing Bubble].

In Oakland, sales of 1%-homes skyrocketed 96.2%, in San Jose 91.2%, and in San Francisco 72.2%. But in all three cities, sales of the 99% are down so far this year! So this isn't exactly a booming housing market but a booming luxury market. A lopsided monstrosity that looks like this:

In a number of cities, including in some of the red-hottest housing markets of last summer, sales of homes in the 99% category have plunged. The worst: Los Angeles -11.7%, San Diego -12.3%, Minneapolis -12.5%, Orange County -12.7%, Sacramento -15.5%, Phoenix -15.7%, Las Vegas -16.3%, and Ventura -16.3%.

Some of these cities aren't exactly cheap places to buy a 1%-home. In San Francisco, the median price is already over $900,000. But the minimum 1%-home? $5.35 million, according to Redfin. You'll need enough after-tax income – if you're not plunking down the cash you got from selling your startup – to cough up a monthly mortgage payment of $21,300. LA is second in line with the minimum 1%-home setting you back $3.65 million, or a monthly mortgage payment of $14,600. That's the minimum. On the upper end, only the sky is the limit....

Location, location, location. Prices of 1%-homes vary by neighborhood. In my crazy San Francisco, Redfin found that Presidio Heights came out on top at $7.48 million for the average 1%-home, neck to neck with neighboring Pacific Heights at $7.18 million, and well ahead of Russian Hill at $6.53. But Presidio Heights was only the 6th most expensive neighborhood in the report, the top five all being in LA. King of the hill: Beverly Glen, where the average 1%-home costs a cool $11.86 million.

There are more expensive towns in the Bay Area, like Atherton, that could compete with the priciest neighborhoods LA has to offer. But they're too small to make it into the stats. And these stats are a perfect illustration of what the Fed has set out to accomplish: the “Wealth Effect” – a semi-religious doctrine propagated by the Greenspan Fed and elevated to a state religion by the Bernanke Fed.

The relentless money-printing binge and zero-interest-rate policy did what it was designed to do: inflate asset bubbles and make some players rich, but not all. A home that cost $150,000 and jumps 50% in price will make the owner $75k. A home that cost $15 million and then jumps 50% will make the owner $7.5 million. A private equity firm that can borrow at near zero cost to buy up 40,000 homes might hope to gain around $5 billion. That’s how the Wealth Effect works.

The problem for the housing market is that there aren’t enough home buyers in that coddled 1%-category. The few can push up prices for a while but aren’t numerous enough to push up sales of the overall market. And they don't like to buy median homes. Yet, as prices rise, homes move further out of reach of the 99%, and inevitably, sales drop further. At some point, something has to give. We already know from the last housing bubble and bust cycle what will give: prices. And afterwards, we'll wonder, as we sort through the debris, how the Fed managed to sucker us into a second housing bubble and bust in just one decade.

See the associated graphs http://www.testosteronepit.com/home/2014/5/28/housing-bubble-2-already-collapsing-for-the-99.html

OffThePeak 11 yrs ago

how much longer can the fed maintain its policy of enriching only the 1%? if they want to try trigger a revolution then they are on the right path

traineeinvestor 11 yrs ago

It's not just the 1% that benefit from ZIRP and QEternity - there are a lot of other "winners" (and, obviously, a lot of "losers").

Ed 11 yrs ago

TI - fully agree --- there has been direct stimulus to the 99% - some examples would be extended unemployment benefits --- the fact that anyone with even a slight issue can get disability now...

But the indirect benefits are colossal - QE has keep interest rates low - so anyone with a loan is paying less...

QE has buoyed the stock market --- anyone with a pension benefits from that as pensions hold vast amounts of equities...

And if you want to drill right down to it --- if there were no QE then there would be no economy -- there would have been a death spiral without the trillions of dollars of stimulus that have been unleashed...

Yes of course the 1% has benefited disproportionately --- but the those making the rules are owned by the 0.1% --- and they are the types that never let a crisis go to waste... they will find an angle...

Those of course who have suffered are the people on gov pensions -- and savers...

traineeinvestor 11 yrs ago

"so anyone with a loan is paying less..."

In Hong Kong we have now had several years of negative real interest rates accompanied by (until recently) rising property values - a lot of wealth (both real and nominal) has been created as a result.

What happens when (not if) the cycle turns and interest rates increase? Probably we will see asset values decline (probably - not definitely as there have been plenty of times when asset values have gone up while interest rates have been rising). People who have being paying down debt will be well positioned to ride out the cycle - and in Hong Kong a combination of P+I mortgages and high deposit requirements means that that will be most people. The amount of equity in the HK property market is huge.

Small point: a lot of government pensions are COLA'd so they don't lose too much.

OffThePeak 11 yrs ago

This is support for my comment about how Fed policy over the last decade or two (or three) has "simply enriched the 1%" in the USA:

http://noapparentmotive.org/blog/wp-content/uploads/2013/09/gordon-piketty-saez-389x400.png

> source: http://www.greenenergyinvestors.com/index.php?showtopic=19066

Possibly, policies in HK have been more enlighted

Ed 11 yrs ago

Real Economy Bites Housing Bubble 2

When the home-sales curve kinked south last fall, soothsayers had some handy reasons: The fiscal cliff, the threat of a government shutdown, and the potential government default that no one took seriously made home buyers uncertain. The jump in mortgage rates in reaction to the Fed’s taper cacophony? Homebuyers would get used to them, soothsayers mused.

By December, it was water under the bridge, but home sales dropped through the winter. Polar vortices were convenient excuses, though in the West, the weather was gorgeous. Then the spring buying season came around when the mood was supposed to perk up, but sales were still dropping.

Beneath the smoothened headline statistics, a darker scenario was playing out: this year through April, sales of the most expensive 1% of homes have soared 21% year over year, while sales in the bottom 99% – a sign of our times that the twisted term, bottom 99%, has become the norm – have dropped 7.6%. In numerous cities, sales at the lower end of the market have plunged, for example by 46% for homes below $200,000 in San Diego. Low inventories were cited as excuse, but inventories in many cities have been rising, which sent the industry scrambling unsuccessfully for fresh excuses [read.... Housing Bubble 2 Already Collapsing for the 99%].

Even Fed Chair Janet Yellen was suddenly concerned about the housing market. Which is ironic. The Fed wanted to create this very situation. And it succeeded with QE and ZIRP that made unlimited amounts of essentially free short-term money available to private-equity firms, REITs, and other large investors that then plowed it into the housing market and gobbled up vacant homes. It started in earnest in early 2012, and with connivance of the banks that were carrying many of these vacant homes on their books, they managed to drive up prices.

It didn’t take long. From January 2012 to April 2014, the median price of existing homes soared 30% and over the same period, the median price of new homes jumped 24%. In February 2013, new homes set new all-time highs, beating the prior peak-of-the-bubble price set in March 2007. And in many cities, including San Francisco, the median price of existing homes has already shot past prior bubble highs.

Other measures of home prices come up with different figures, but the trends are the same: home prices have jumped.

What hasn’t jumped? Incomes. According to Sentier Research, which uses data from the monthly Current Population Survey, median household income, adjusted for inflation, in April was $52,959 – 4.2% lower than at the official end of the Great Recession in June 2009, 5.9% lower than in December 2007 before the bottom fell out, and 7.0% lower than in January 2000.

With its strategy of throwing free money at Wall Street, the Fed has carefully selected the winners: among them, Wall Street players and banks that would buy or already owned vacant homes. To defend its actions, the Fed assiduously points out that homeowners were winners too.

On paper. Homes are worth more, and homeowners feel richer. But how can they profit from this “wealth?” They could draw cash out of it by borrowing more against their home, but that’s not profit. That’s leverage. Or they could sell the home to pocket the price increase. Alas, unless they want to move to Detroit or live in a tent, they’re going to end up buying a home whose price has also been inflated – at a similar rate if it’s in the same neighborhood – and the “profits” from the sale, and the illusory “wealth effect,” will dissipate in the inflated cost of the new home.

And now some of the Fed’s chosen losers were tabulated in the MacArthur Foundation’s How Housing Matters Survey. Turns out, the inflated cost of housing, in combination with the lack of pay increases, has turned into an affordability crisis, which is killing the housing market.

In order to stay current on their rent or mortgage, 52% of all adults in America over the last three years had to do at least one of these things: take an additional job or work more hours; stop saving for retirement, pile up credit card debt, cut back on healthy foods, or slash health-care spending.

For these people – over half of the adult population! – housing costs consume a disproportionate part of their incomes. They’re barely scraping by: 47% of the homeowners and 56% of the renters reported that their housing situation wasn’t “stable and secure.”

Rising housing costs make their problems worse. An increasing number of them can’t afford to buy a decent home at current prices. Since they represent a big part of the population, not just a few unlucky ones, home sales take a hit.

Affordability, like the rest of real estate, is local. In numerous cities, the mere word has become an insider joke. For example, in San Francisco, people with low six-figure incomes are struggling to find a halfway decent apartment they can buy and have enough money left over to commute to work and buy groceries. And those making $40,000? Well, maybe they can find, after a long wait, a taxpayer subsidized apartment. But that isn’t a solution either.

So it’s surprising that the Fed would express concern about the housing market. It knowingly created that monster. I wrote about Housing Bubble 2, and what role Wall Street played in it, for the first time in March 2013. And I’ve writing about it ever since (here’s the series). I don’t have access to the voluminous data, brain power, and resources the Fed has. I’m just a guy who likes a good craft brew – a certain IPA would do the job right now – after battling it out all day. But even to me, it was clear at the time. Yet since then, the Fed has printed another $1 trillion, and ZIRP is still the relentless law of the financial land, all in order to inflate asset prices beyond recognition – including home prices.

But unlike some other assets, housing is still rooted in the real economy – a link the Fed never could sever, though it severed the link between stocks and the economy with surgical precision. When real folks cannot afford to buy, transaction volume declines everywhere except at the top, anxiety spreads, and even many of the lucky ones who bought their home years ago can no longer afford to move: they can sell, but they can’t afford the mortgage payments of the next home whose inflated price has to be financed with higher mortgage rates. This is what the Fed has wrought by “fixing” the housing market.

More http://www.testosteronepit.com/home/2014/6/4/real-economy-bites-housing-bubble-2.html

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